138 | HOW TO WRITE A BUSINESS PLAN
• to quickly reduce or eliminate items
that move slowly, and
• to keep the overall investment
in inventory in line with profit
expectations.
Good retailers keep current with the
merchandise customers want now. They
make it a point to always have the popular
items in stock. No self-respecting popular
music store would be caught dead without
the top ten CDs and Blu-Ray discs in
stock. Good retailers quickly mark down
slow-moving items for a quick sale. They
then use the cash from selling these dead
items to buy new and popular ones. For
example, there is nothing sadder than a
small bookstore still trying to sell last year’s
hardcover bestseller when the drugstore
down the street already has the paperback
version.
A good retailer has a wide enough
selection to appeal to customers. In a
bookstore’s case, this might mean a strong
backlist in several areas of local interest.
Good inventory management also means
deciding that some customers just aren’t
worth catering to. For example, if you wear
odd size clothes, you are very aware of this
merchandising policy. I wear shirts with
37-inch sleeves because I’m six feet, four
inches tall, and it has only been in the last
20 years that some department stores carry
this size. That’s because retailers used to
think that 37-inch-sleeve shirts never sold.
Then the baby boom generation came of
age, with many men needing larger sizes,
and it became economical to serve these
folks.
Good retail managers accomplish all
of these ends and also keep the total
dollar investment in line with profit
goals by carefully managing “inventory
turnover”—how many times per year you
completely replace the stock. For example,
if your average cost of sales is 50% and
your sales are $300,000 and your inventory
is $40,000, you turn over your inventory
3.75 times per year ($300,000 × 0.5 0 ÷
$40,000). As before, many retail managers
strive for three to four turns per year. Some
businesses, like gasoline stations, may turn
over their inventory every week. Make sure
your plans reflect your industry standard
and good, common sense. ●